Retail Stores are Transforming into Fulfillment Centers

Converting retail stores into mini-fulfillment centers is a more cost-effective way to expand the distribution network using existing facilities that are already close to where customers live.

In the early days of E-commerce, most retailers drew a hard line between their online sales, inventories and their brick-and-mortar operations. While this may have helped some companies ease their transition into E-commerce, it soon became apparent that customers wanted a more integrated experience.

Customer demand has spurred greater integration of in-store and online shopping. This omnichannel approach has become most apparent with retailers that are using their own physical store locations to fulfill online orders.

Approaches vary depending on the retailer. In some cases, online orders are shipped to the store from a distribution center for pick-up. In others, customers can purchase directly from the in-store inventory. Some retailers allow customers to order an item from one store and have it shipped to a closer location. Target is shipping packages to consumers from its stores; and so is Walmart, which is also having store associates deliver packages with their personal vehicles.

Customers want faster shipments at a lower cost. This means inventory has to be located closer to the consumer. The old model of shipping from a handful of strategically placed distribution centers may be more efficient, but it isn’t agile enough to meet customer demands. Some companies have responded by building smaller warehouses in more locations. However, this requires an investment in expensive real estate and more employees. Converting retail stores into mini-fulfillment centers is a more cost-effective way to expand the distribution network. This is achieved by using existing facilities that are already close to where customers live.

According to the National Retail Federation Omnichannel Retail Index, 32% of retailers enable customers to buy items online and pick them up in the store, while 75% enable in-store returns of online merchandise. That figure will continue to increase. A recent Zebra Technologies survey found that 76% of retailers use store inventory to fill online orders, and 86% plan to implement “order online/pick-up in store” within the next year.

This type of transition has to be handled correctly in order to be effective. For one toy retailer, their strategy was fairly progressive when it came to integrating its online and in-store sales, offering click-and-collect, ship-to-store, reserve online, and ship-from-store options. Unfortunately for them, many of those efforts came too late, and were undermined by an insufficient online sales strategy and the fact that its website was in dire need of an upgrade.

For retailers hoping to leverage the fulfillment capabilities of their stores, there are few key pitfalls to avoid.

Store Layout: Make sure you have room to accommodate fulfillment operations. Will you need a special counter for online purchase pick-ups/returns, or space to hold more inventory?

Staffing: You may need to create new positions to manage online fulfillment. Although some of your current in-store staff can help, redirecting them to fulfillment operations shouldn’t happen at the expense of in-person customer service.

Inventory Visibility: In-store, online and distribution center inventories need to be integrated and visible to all key stakeholders for this model to work. Customers want to know that the item they ordered is in-stock, regardless of the fulfillment model. If a purchase isn’t available when they arrive to pick it up, you’ll likely lose any future sales as well.

Inventory Accountability: When integrating online and in-store sales, you also have to be mindful of keeping your shelf inventory at appropriate levels. If you pilfer too much store inventory for online orders, you may actually be losing in-store sales. The in-store assortment has to be maintained.

Efficiency: Don’t expect the same shipping performance from a store as you can get from a warehouse. Even a high-performing retail location can’t match the efficiency of a DC equipped with the latest warehouse automation and experienced staff. Orders should only be shipped from a store if their proximity will speed delivery times despite the slightly slower pick/pack/ship operations.

With careful planning, you can leverage retail store locations to act as fulfillment centers in a way that will help expedite shipping, reduce costs and even help rebalance inventories, reduce obsolescence and reduce markdowns. A seamless, omnichannel approach that gives customers greater flexibility and higher levels of service will ultimately pay off in more repeat business and additional sales.

Our team of project managers, engineers, and analysts can assist and support you through your DC automation evaluation and implementation process from start to finish. Contact us today via phone (+1 856.727.1100) or online to learn more.

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